Vol. 6 Num. 1 - GCG: Revista de Globalización, Competitividad y ...

Edy Wongdemand-side factors in the fashioning of a successful value chain. Lead firms in any valuechain are usually those who have proven their skills in reconciling supply- and demand-sideconsiderations in satisfying the needs of a particular market demand or consumer segment.A successful value chain is more than a supply chain that produces goods at a competitivecost, but one that delivers these goods with the design, quality, distribution channels, andafter-sale service required by the consumers. As the product line becomes more sophisticated,product customization and differentiation will become increasingly important in maintainingits market competitiveness. A successful value chain is one in which the forces ofproduction are organized in an effective and competitive manner to meet the needs of themarket. The high margin value chain activities such as marketing, brand development, productdesign, and customer service will increase in significance as a firm moves up the valuechain. Unfortunately, expertise in these high margin activities is generally lacking in manydeveloping countries. Suppliers in these countries may also find it difficult to enter foreignconsumer markets without the requisite cultural and market familiarity, should they decideto create their own value chain. This accounts for why most international value chains arequasi-hierarchies led by multinationals from Western countries.147For China to successfully move up the value chain, it must therefore overcome constraintson both the supply and demand sides. Our analytical framework is thus built on the interplayof supply and demand factors.5.1. Supply-Side ElementsA necessary, though not sufficient, condition for value chain upgrade is an improvement inChina’s productive capability. It must become more technology- and skill-intensive irrespectiveof the type of upgrading it aims to achieve. Indeed, all four types of value chain upgradepreviously discussed have been identified as desirable for Chinese firms. These firms areencouraged to capture a greater share of production up the value chain, produce with bettertechnologies and quality, and enter new industries and markets. Any strategy that wouldexpand China’s productive and technological capabilities would enhance its supply-sidereadiness for value chain upgrade. China’s success in upgrading its value chain position willthus depend partially on its success in improving its productive resources.Notwithstanding recent advances, China is said to suffer from a variety of deficiencies thatwill act as barriers to upgrading its value chain activities. As these deficiencies are widely discussed,it suffices to report that they include inadequate human resources and competency9 , inefficacious management systems and capability, limited innovativeness, lack of crossculturaland international expertise, poor international product image, etc. Not all critics areoptimistic that China is equipped to overcome these weaknesses in short order. It is China’suneven business performance and lack of experience in activities further up the value chainthat have caused many to express doubts about its attempt to move up the value chain.In particular, China’s relative lack of professional skills in modern management, marketing,product design, and innovation is seen as a major barrier to its value chain upgrade efforts.The above deficiencies are nevertheless surmountable barriers for process and product9. These would include technical, cultural, and linguistic skills.GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 136-155